Academic journal article Journal of Supply Chain Management

The Ailing Healthcare Supply Chain: A Prescription for Change

Academic journal article Journal of Supply Chain Management

The Ailing Healthcare Supply Chain: A Prescription for Change

Article excerpt

INTRODUCTION

Today's business literature is rife with supply chain management (SCM) models, theories, and more importantly, stories of successful application of SCM principles. Embedded in that literature are reasonably well-understood definitions of supply chain components, practices and objectives. Considerable improvements have been made in supply chain management in many industries, but there has been limited success in making systemwide SCM improvements in the healthcare industry. Yet, there is significant evidence that this industry is in need of broader changes.

Research by the Center for Studying Health System Change found that hospital spending accounted for 47 percent of the overall 7.2 percent increase in healthcare costs during 2000 (Struck et al. 2002). With the supply chain costing as much as 40 percent of the typical hospital's operating budget, the strategic importance of hospital supply chain management is evident. Current estimates of the potential benefit of an efficiently managed healthcare supply chain range from 2 percent to 8 percent of hospital operating costs (Haavik 2000; EHCR 1996; CAP Gemini 2001). An efficient, user-friendly supply chain can also impact the hospital's revenues by engendering physician loyalty and staff retention and providing better customer service (Computer Services Corporation 1999).

Despite the recognized importance of managing the hospital supply chain, tremendous variability exists in execution and measurement. There has also been limited academic research that helps to identify barriers to successful implementation or to recommend best practices. This article attempts to bridge the gap between practice and research. Based on a review of the literature and interviews with healthcare supply chain professionals, this study identifies the key barriers to healthcare supply chain execution, makes recommendations for improvement, and highlights the need for additional research.

This article first reviews the literature to identify the challenges or barriers for hospital supply chain initiatives. Then the methodology, including the case study protocol and the execution of the research, is discussed. Next, the analysis of the data is followed by a discussion of the managerial implications, the research limitations and future research opportunities.

LITERATURE REVIEW

The Evolution of Supply Chain Management

During the last two decades, the scope of supply chain management has greatly expanded. Early supply chain efforts focused on the material and service inputs from suppliers and their impact on an organization's ability to meet customer needs. During those early efforts, much of the attention was placed on cost reduction. Gradually, organizations have understood the importance of looking at the entire supply chain--from raw materials to manufacturing to distribution to retailers and to the final customer--and its impact on the customer. The focus has shifted to overall profitability of the supply chain--increasing revenues by having the right product at the right time--and decreasing costs through more efficient material and information flow (Handfield and Nichols 1999; Simichi-Levi et al. 2002).

Nelson et al. (2001) described the characteristics of a successful supply chain: top management understands the importance of supply chain management; benchmarking is used to assess and guide; an organizational culture of shared knowledge prevails; the participants' view of the supply chain includes the entire chain; and best practices are institutionalized. By taking a system-wide approach, organizations have led their competition and proven that "supply chain mastery provides an effective means of achieving market share gains, customer intimacy and enduring advantage" (Copacino and Byrnes 2001). Fine (1998) concluded that competitive advantage is lost or gained by how well a company manages the dynamic relationships throughout its chain of suppliers, distributors and alliance partners. …

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